MUMBAI (Reuters) - The rupee ended marginally stronger on Wednesday aided by dollar inflows into local shares, though importers' demand for the greenback prevented a sharper rise.
Traders are now awaiting more clarity on the macro-economic outlook from the Reserve Bank of India's mid-quarter monetary policy review on Thursday and the federal government's annual budget Friday.
They expect the rupee to weaken if the RBI cuts its key interest rate in the review, as it would discourage foreign fund inflow in the short term.
Non-food manufacturing inflation, which the central bank uses to gauge demand-driven price pressures, slowed to a 14-month low, sparking speculation of a rate cut On Thursday. Analysts were earlier expecting a reduction in interest rates only in April.
"The market will look for the fiscal deficit figure keenly (in the budget), because foreign fund inflows will depend on it," said Vikas Chittiprolu, a senior foreign exchange dealer with state-run Andhra Bank.
A high fiscal deficit has been a cause of worry for foreign investor.
The rupee ended at 49.91/92 to the dollar, slightly stronger than Tuesday's close of 49.93/94, after moving in a 49.8350 to 50.0150 band during the session.
The main 30-share BSE index gained 0.6 percent to 17,919.30 points, marking a fourth consecutive session of gains and its highest close since February 24.
Dollar demand from oil and gold importers and due to defence-related purchases, put a lid on the rupee's gains.
Oil is India's largest import item and oil refiners are the largest buyers of dollars in the local market.
Traders said dollar strength overseas also kept the rupee under pressure.
The dollar hit an 11-month high against the yen and 1-month high versus the euro on Wednesday.
The one-month offshore non-deliverable forward contracts were at 50.33.
In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and on the United Stock Exchange were all around 50.08, on a total volume of $4 billion.
Editing by Rajesh Pandathil